Focus on – Streamlined Energy and Carbon Reporting (SECR)

From financial years beginning on or after 1 April 2019, large UK companies will be required to report publicly on their UK energy use and carbon emissions within their Directors’ Report or an equivalent section within their annual reports. This new requirement has been implemented by the Department for Business, Energy and Industrial Strategy (BEIS).

SECR will impact any companies, LLPs and groups that exceed at least two of the following three thresholds in the last two preceding financial years:-

  • £36m annual turnover
  • £18m balance sheet total
  • 250 employees

For businesses meeting the above criteria, company or group reporting is required regardless of whether an overseas parent company or group has published a similar report. A group may however exclude any energy and carbon information relating to any subsidiaries which would not be obliged to report individually according to the thresholds. After undertaking a calculation, where a company has consumed less than 40 MWh, a disclosure is not required.

What is it?

Designed to build on the existing mandatory greenhouse gas reporting already in place for UK quoted companies and replace the Energy Efficiency Scheme CRC its aims are to:

  1. Increase awareness of energy costs within large and quoted organisations, including enhanced visibility to key decision makers;
  2. Create more of a level playing field amongst large organisations, in terms of energy and emissions reporting;
  3. Ensure administrative burdens associated with energy and emissions reporting are broadly aligned to existing energy reporting requirements and business reporting frameworks;
  4. Provide organisations in scope with the right data to inform adoption of energy efficiency measures and opportunities to reduce their impact on climate change; and
  5. Provide greater transparency for investors and other stakeholders, on business energy efficiency and low carbon readiness.

Complying with SECR

Quoted companies of all sizes continue to be required to report their global greenhouse gas (GHG) emissions and an intensity ratio through their annual reports. Additionally, they are now required to report their total global energy use and information relating to energy efficiency action alongside the methodology used to calculate the new and existing disclosure requirements. Previous year’s figures for energy use and GHG should also be disclosed.

Large unquoted companies and LLP’s are obliged to report their UK energy use and associated GHG emissions as a minimum relating to gas, electricity and transport fuel, as well as an intensity ratio and information relating to energy efficiency action, through their annual reports. Previous year’s figures for energy use and GHG emissions should also be disclosed (except in the first year).

In addition, all companies are required to provide information on any energy efficiency action taken in the financial year.

Beyond compliance

Whilst it is not a direct requirement for compliant filing, SECR also recommends voluntary disclosures and these should certainly be considered given the likely wide ranging users and stakeholders that will ultimately ask for the data now that there is a ‘standardised’ framework allowing comparisons to be made.

Voluntary disclosures may include:

Scope 1 – wider emissions such as other fuel use and refrigerants
Scope 3 – other staff travel, e.g. train, flights etc

Potential impact of getting it wrong or drawing your boundaries too tightly

  • The potential reputational impact of public disclosure of energy use and carbon emissions
  • The entity may not be in line with acceptable practices/industry peers
  • Facing penalties from disclosing inaccurate data/in a non-compliant form. Reporting is part of the financial reporting requirements, therefore, should reports not be compliant they can make statutory account filings late and fall within the fine structures for such
  • Disclosures will form part of the Directors’ report within annual account filings and as such disclosing additional information without assurances that the data and internal governance structures are adequate can lead to exposure of those signing the accounts

How can we support you?

As part of a wider strategy/risk review or as a standalone engagement we can:-

  • Provide guidance on your carbon accounting
  • Assist you with defining the reporting scope including operational control and organisational boundaries
  • Review your processes, control, and data outputs to assess the accuracy and completeness of your carbon disclosures
  • Provide recommendations on best practice in monitoring and reporting operations

What you gain

  • Accurate, compliant reporting
  • Accelerate delivery, efficient reporting
  • Increased stakeholder trust and confidence

What are the key challenges and opportunities?

Challenges

  • Determining the operational boundaries and scope for reporting
  • Developing/refining the processes and controls for data collection
  • Accounting for complex operations

Opportunities

  • Operational cost savings through increased awareness of energy use and efficiency
  • Differentiating from competitors by demonstrating best practice in energy savings and efficiency
  • Demonstrate improved performance year on year by establishing ongoing monitoring of energy use and carbon emissions

If you are interested in discussing the content further in this article please make sure to get in touch with a member of our Audit team on 01772 821 021 or email info@mooreandsmalley.co.uk

This article originally appeared on MHA MacIntyre Hudsons website, which you can find here.

The benefits of reverse stress testing in reviewing financial forecasts

All directors have obligations with respect to going concern considerations, and these considerations have been significantly impacted by the COVID-19 pandemic.

It is certainly a challenging time to be forecasting financial outcomes for many businesses. The use of reverse stress testing by management and directors to appraise their going concern assessment offers a new perspective.

Stress testing of financial forecasts in the traditional sense would involve the consideration of a variety of values for the key assumptions embedded within those forecasts, and determining the possible impacts of those variables.

Reverse stress testing starts with a defined outcome, such as breaching banking covenants or business failure being examples, before considering what scenarios and key assumptions could result in that outcome. Failure can occur well before the point at which liquidity is exhausted, and the reverse stress testing can help identify those early issues that lead to failure.

As Auditors we have been using reverse stress testing to challenge and appraise the forecasts prepared by management as part of the going concern consideration at the close of an audit.

Our focus tends to be on when an entity might run out of cash, when banking covenants might be breached or when debt is due to be repaid. We consider a range of adverse circumstances that would cause these outcomes and then discuss the probabilities of these circumstances occurring.

Reverse stress testing can also be used by management to identify areas of risk and weakness through their financial forecasts, which can then in turn be used to develop strategies to mitigate these risk occurring.

This might for example give a business an opportunity to commence early discussions with finance providers to seek waivers of covenants where they are forecasting future breaches, giving management more time to react to events and consider changes in the business strategy.

If you would like to discuss any of the content discussed in this blog post further, please get in touch with our Audit partner, Alex Kelly on alex.kelly@mooreandsmalley.co.uk or call 0161 519 5050.

Andrew Matthews to lead MHA Moore and Smalley’s Liverpool office

MHA Moore and Smalley has appointed experienced management accountant Andrew Matthews to lead its Liverpool office.

Andrew joins us as a partner after three and half years as group finance director of fast-growing Merseyside-based manufacturer and exporter Inciner8 Ltd.

At Incincer8 he was part of the management team that oversaw significant growth and expansion of the incineration specialist.

Prior to this, Andrew spent over eight years at DSG Chartered Accountants in Liverpool as audit and corporate finance director.

Our firm has significantly expanded its presence in Merseyside since opening a permanent office at 20 Chapel Street in the city in 2018.

Andrew, who grew up in Liverpool and lives in Sefton, said:

“I’d already experienced life as a client of MHA Moore and Smalley during my last FD role in industry, and had been impressed with the wealth of knowledge in the firm and its commitment to helping clients plan for the future.

“It’s a privilege to be given the opportunity to help the firm further grow its reach and client base across Merseyside, The Wirral, West Lancashire and North Wales. I’m particularly looking forward to renewing and developing relationships with the professional community and our clients.”

Danny Houghton, partner of MHA Moore and Smalley, said:

“Merseyside and its surrounding regions have been a key driver of growth for the firm and we’ve supported a wide range of owner-managed businesses, including manufacturers and exporters via our association with Baker Tilly International.

“Andrew’s time in both practice and industry have given him first-hand experience of advising a business and the challenges of growing one too. Coupled with his deep understanding and knowledge of the region, he was the perfect candidate to lead our Liverpool office.”

In addition to his management accounting, audit and corporate finance expertise, Andrew’s time as an FD has helped him develop specialisms in high-growth business planning and strategy, international trade, manufacturing operations, and shareholder tax planning.

Outside of work, Andrew is a trustee of Sefton Women and Children’s Aid a voluntary organisation providing frontline support to victims of domestic violence.

A trained classical violinist, Andrew also holds a motorcycle licence and a private pilot’s licence and has hundreds of hours of flying time under his belt.

Internal Control Opportunities in the New Normal

Following the easing of lockdown and measures put in place to encourage the restarting of the economy, it is important that we take the time to consider what benefits and efficiencies we have gained through working in a largely remote environment and how we can build these into a ‘new normal’ going forwards.

This is to maximise not only the effectiveness of working practices but also to provide for the welfare of our staff and the way that they choose to live their lives going forward. We have therefore provided some thoughts below on some of the considerations that should be given when adapting your control arrangements in the new world.

Bring everyone together

It is tempting for decisions on how to operate in the “new normal” to be taken at the top or through small decision-making groups. Taking a more inclusive approach to this across the workforce not only engenders a feeling of togetherness but also maximises the likelihood that you will be able to capture more of those marginal efficiency gains that people have developed in a remote environment and be able bring these into the new normal working conditions.

Understand the risks

Knowing not only the risk environment which you operate in but also the organisations appetite to risk will help to enable the right people to make good decisions at the right time. Ensuring your systems of risk management are effective and up to date will therefore help you in understanding the risks you face in the post-pandemic world but also, given your appetite to risk, how you may choose to respond to these.

Complexity is not your friend

There is sometimes a view that by making a process lengthier and more complex that you reduce the likelihood of material error as so many checks are in place to make the chances of this remote. In reality this is rarely the case, and it is often simple processes, with appropriate safeguards built in, that work the best as they can be easily understood by all and therefore not only reduce the time taken to process but also the opportunity for someone getting it wrong first time.

The threat of fraud will always be there

Unfortunately, there will always be those who want to exploit people and organisations for their own gain, so it is vital that appropriate safeguards are built into your control environment to minimise the risk of fraud and theft. For your IT systems this means ensuring that there are safeguards over access to systems, password controls are enforced, and patches are updated as often as required. There can be great efficiencies gained through moving to electronic processes for areas such as invoice authorisation, but it is important that safeguards are developed to reduce the risk of fraud.

Test, test, test

The importance of testing has been highlighted for different reasons in recent months, but it is important as part of any changes to control processes that these are tested on a small scale prior to going live to ensure any flaws in the process are identified and rectified before the processes become business as usual.

Support through governance structures

Establishing good governance arrangements at all levels within your organisation will help support the decision making and help to ensure that the right decisions are made by the right people at the right time.

Seek assurance

At first, second- and third-line levels it is important that Boards, via their audit or risk committees, are assured that key internal controls are operating effectively to support the organisation in meeting its objectives. Therefore, it should be identified how such assurance will be provided and received, and whether independent assurance needs to be sought over key internal control processes.

Find out more

Our Internal Audit team has significant experience in working with all types of organisations in designing and implementing changes to control environments, risk management and governance processes and would be delighted to support you in developing and embedding your control environment in a post-pandemic environment.

Please contact Karen Hain for more information about how our services can help you.

This article originally appeared on MHA McIntyre Hudson website, the article can be found in the link attached here.

Data Analytics in Audit

In audit terms, data analytics in audit is a tool which auditors can use to analyse large volumes of data, to assess risks in a population and identify items for further testing.

The main benefits are:

– Enhanced audit quality

– Improved audit effectiveness

– Mitigating risks of fraud

Data analytics should increase; the focus, approach to risk, and the outcome from the audit process.

Paul Spencer

Professional: Paul is a qualified ICAEW chartered accountant and has been a member of the firm’s audit team for a number of years. Paul has a wealth of experience working with clients in the manufacturing sector and groups, including a number of owner managed businesses.